Wow, thats sounds crazy. I have a 1 question and 1 suggestion. What kind of video card are you using?
I think you should try 0710 Beta 3, from what I understand, they have fixed ALOT of bugs since 0704. Honestly, it's what I did, I started off by isntalled 0704, ran into all sorts of issues and as I was researching those issues on the forums, 80% of the time the solution was implemented in the latest release, so I just downloaded the latest and installed it. Most of my issues dissapeared. I am stuck with only 1 issue left now, and thats not even LinuxMCE's fault, it's Windows Vista's incompatibilty with the way linux handles smb/cifs shares.